Micro Economics

THE UNIVERSITY OF THE WEST INDIES Faculty of Social Sciences

DEPARTMENT OF ECONOMICS ECON 1001 - INTRODUCTION TO MICROECONOMICS

(Semester I 2014/2015) TUTORIAL ASSIGNMENT #1 (Units 1, 2 and 3)

1.

(a) Define “Microeconomics” and “Macroeconomics”. (b) Discuss why you think Economics is important (apart from being a requirement for obtaining a University degree).

2.

You win $500.00 in a Football bet. You have a choice between spending the money now or putting it away for a year in a bank account that pays 2% interest. What is the opportunity cost of spending the $500.00 now? Imagine a society that produces military goods and consumer goods, which can considered an output of “Guns” and “Butter”. (a) Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a “bowed-out” or convex to the origin shape. (b) Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. Where do efficient points of production lie on the PPF? (c) Imagine that the society has two political parties; called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on the PPF that the Hawks might choose and a point the Doves might choose.

3.

4.

The data presented in Table 1 below has the utility schedule of an individual with an income of $500.00. The individual’s objective is to maximise utility when consuming two products – Rice and Legumes. You are required to do the following: (a) Derive the Total Utility schedule for Legumes and the Marginal Utility schedule for Rice. (b) Determine the equilibrium consumption of Legumes and Rice before the price change in Legumes (c) Identify and explain the slope of the Marginal Utility Curve and draw the Total and Marginal Utility curves for both products (d) Determine the equilibrium consumption of Legumes and Rice after the price change in Legumes. (e) Derive the demand curve...